Hedge funds continue to struggle in June, says Edhec

Date: Thursday, July 21, 2011
Author: Wendy Chothia, HedgeWeek

After some disappointing returns in May, the stock market endured another difficult month. In June, the S&P 500 index recorded a second month of significant losses (-1.67%) and implied volatility (16.5%) rose again (1%). However, these hard times brought an end to the unsustainable growth of the stock market over the past year (+31.78%) and a radical drop in implied volatility (-10%).

The fixed-income market also faced difficulties. Although not performing as poorly as last month, convertible bonds (-1.03%) fell again and reverted to their level of January. After positive returns in April and May, regular bonds (-0.77%) returned to negative territory. The commodities market (-5.43%) registered a second month of spectacular losses, although to a lesser extent than in May. Similarly to the S&P 500, these losses came after exceptional growth (+52.01%) during the previous eight months.

In such poor market conditions, all hedge-fund strategies struggled and displayed negative performances (except Fixed Income Arbitrage).

Convertible Arbitrage (-0.95%) was heavily penalised by the fall in convertible bonds and, despite the decline of the stock market and the reduction of the credit spread (-0.16%), registered its worst monthly performance of the year. The drop in the commodities market impacted the CTA Global strategy (-2.27%) which registered a second month of heavy losses, although not as severe as last month.

The Event Driven (-1.40%) and Long/Short Equity (-1.18%) strategies both recorded losses relating to the fall back in the S&P 500. Conversely, with its naturally limited (but statistically significant) exposure to the stock market, the Equity Market Neutral strategy (-0.02%) almost managed to remain stable and, along with the Merger Arbitrage strategy, displayed the best year-to-date performance so far among the equity-oriented strategies.

Overall, the Fund-of-Fund strategy (-1.36%) limited its losses more effectively than the S&P 500.